LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, November 17, 2020

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, November 17, 2020

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk What Path Lies Peru’s Congress CEO, DevryBV Sustainable Strategies Selects Sagasti as Joyce Chang Global Head of Research, Ahead for Peru’s Interim President JPMorgan Chase & Co. Peru’s Congress selected centrist Paula Cifuentes lawmaker Francisco Sagasti Director of Economic & Fiscal Affairs, Latest President? as the country’s new president, Latin America & Canada, Philip Morris International Peru’s third in a week. Sagasti is Marlene Fernández to serve until next July. Corporate Vice President for Page 2 Government Relations, Arcos Dorados (McDonald’s) Peter Hakim BUSINESS President Emeritus, Inter-American Dialogue WhatsApp to Donna Hrinak ‘Soon’ Launch Senior VP, Corporate Affairs, Royal Caribbean Group Payments Jon E. Huenemann Service in Brazil Former Corporate and Government Senior Executive WhatsApp will “soon” be able to James R. Jones Lawmaker Francisco Sagasti was selected Monday as Peru’s new interim president. His prede- launch its payments service in Chairman, cessor lasted just five days in office.// Photo: Agencia Andina. Brazil, said central bank chief Monarch Global Strategies Roberto Campos Neto. WhatsApp Craig A. Kelly Peru’s Congress on Monday selected centrist lawmaker originally rolled out the service in Senior Director, Americas Brazil last June, but the central Int’l Gov’t Relations, Exxon Mobil Francisco Sagasti as Peru’s new interim president—the bank and antitrust regulator shut John Maisto country’s third in a week. Legislators selected Sagasti, an Director, U.S. Education it down, pending a review. Finance Group Q engineer from the centrist Purple Party, following Sunday’s Page 2 Nicolás Mariscal resignation of interim President Manuel Merino, who stepped down Chairman, Grupo Marhnos amid violent protests after just five days in office. Merino had replaced POLITICAL Thomas F. McLarty III President Martín Vizcarra, whom Congress removed from office on Nov. Hurricane Iota Chairman, 9. Legislators had declared Vizcarra “morally unfit” for office over his McLarty Associates Slams Nicaragua handling of the Covid-19 pandemic and allegations of corruption, which Beatrice Rangel Hurricane Iota pummeled the Director, he has denied. Newspapers and analysts have called Vizcarra’s ouster AMLA Consulting LLC coast of Nicaragua Monday night as a strong Category 4 storm. The Jaana Remes a “coup,” and the protests it sparked left at least two dead and were the Partner, largest in Peru in two decades. What is at the root of Peru’s political hurricane is hitting the same area McKinsey Global Institute that was devastated by Hurricane Ernesto Revilla instability, and to what extent are protests likely to continue and intensi- Eta less than two weeks ago. Head of Latin American fy? What will the next five months hold for Peru ahead of the scheduled Page 2 Economics, Citi April 2021 elections? What implications will the crisis have for the Gustavo Roosen Chairman of the Board, country’s already hard-hit economy and investment climate? Envases Venezolanos Andrés Rozental President, Rozental & Cynthia McClintock, professor of political science and inter- Asociados national affairs at The George Washington University: “The Shelly Shetty Managing Director, Sovereigns root cause of the impeachment was elites’ pushback against Fitch Ratings A Vizcarra’s anti-corruption reforms. Vizcarra championed the prosecution of under-the-table payments by companies to politicians—a practice, entrenched for centuries, that had catalyzed the prosecution of all four presidents elected since 2001 and scores of additional authorities. Many legislators feared an end to their own immunity from prosecution. Other legislators have personal stakes in for-profit univer- Iota made landfall Monday night. // Image: U.S. Nat’l Hurricane Center. Continued on page 3

POLITICAL NEWS before he resigned amid deadly protests. The NEWS BRIEFS protests, in which as least two people have Hurricane Iota been killed, erupted after lawmakers swiftly At Least 13 Killed in removed President Martín Vizcarra from Tanker Truck Explosion Slams Nicaragua as office on Nov. 9. Sagasti was sworn in as the president of Congress and shortly afterwards, in Mexico’s Nayarit State Category 4 Storm he reached the required majority vote in order A double-tanker truck transporting liquefied to become president, leading to applause in cooking gas on Monday flipped on a highway in Hurricane Iota has made landfall in Nicaragua, the chamber, the Associated Press reported. the state of Nayarit in western Mexico, caught just miles away from where Hurricane Eta Sagasti won the votes of 97 lawmakers, with fire and exploded, killing at least 13 people, au- hit less than two weeks ago, with possible just 26 voting against him, CNN reported. “We thorities said, the Associated Press reported. “life-threatening” flooding, catastrophic winds will do everything possible to return hope to The victims were found still in their vehicles, and mudslides, CNN reported. The hurricane is the people and show them they can trust in burned beyond recognition. The truck driver expected to be felt throughout Central America us,” Sagasti said, the AP reported. Sagasti and appears to be among those killed. Similar and Mexico’s Yucatán Peninsula, as well as members of his Purple Party bloc were among incidents involving double-trailer freight trucks Jamaica and as far south as Colombia. The only 19 of 130 legislators who voted against have occurred in Mexico in recent years. storm hit in the town of Haulover in Nicaragua removing Vizcarra from office last week. And at 10:40 p.m. Eastern Time as a Category 4 unlike Vizcarra, Sagasti has a party in Congress hurricane with maximum sustained winds near to represent him. A year ago, when Sagasti 155 miles per hour, according to the National was a candidate for a seat in Congress, he Leftist Argentine Senators Hurricane Center. Haulover is just 15 miles told the Advisor that the “main contribution” of Demand Concessions south of where Eta had struck, potentially members of Congress “is to behave decently From Int’l Monetary Fund leaving some of the country’s most vulnerable and begin the process of restoring public A group of leftist Argentine senators loyal to areas devastated for years to come, according trust in politics.” Sagasti is to serve as interim Cristina Fernández de Kirchner, a former pres- to the report. [Editor’s note: See Q&A in Mon- president until next July when a new president, ident and current vice president, sent a letter day’s issue of the Advisor.] elected in April, takes office. Peru has been to the International Monetary Fund, demanding hard-hit by the Covid-19 pandemic, with among that the lender refrain from attaching condi- the world’s highest per-capita death tolls from tions to a new loan program and also publicly Peru’s Congress the disease, Bloomberg News reported. Its acknowledge its part of the responsibility for economy contracted 30 percent in the second Selects Sagasti as the country’s ongoing economic problems, the quarter, the Financial Times reported. The Inter- Financial Times reported. The senators also Interim President national Monetary Fund expects the economy pushed for the country to receive a five-year to contract 13.9 percent this year. grace period before repaying a $44 billion loan, Peru’s Congress on Monday chose Francisco as well as lower interest rates and a repayment Sagasti, a centrist lawmaker and technocrat, schedule spread over decades. as the country’s new interim president. A BUSINESS NEWS 76-year-old former World Bank official, Sagasti is the country’s third president in a week, following Sunday’s resignation of Manuel WhatsApp Will ‘Soon’ Suriname Asks Creditors Merino, whose presidency lasted just five days Launch Payments in for Bond Payment Deferral CORRECTION Brazil: Campos Neto Suriname’s government has asked creditors to allow a payment deferral on its two bonds, A news article in Monday’s Advisor which amount to $675 million, in what analysts incorrectly said Reina Mejía, who was Facebook’s WhatsApp messaging platform will say could be a preview of a broader debt approved as executive vice president of “soon” be able to offer peer-to-peer electronic restructuring, Reuters reported Monday. In a the Inter-American Development Bank, is payments in Brazil, the country’s central bank statement on Saturday, the government of new the highest-ranking woman ever to serve chief, Roberto Campos Neto, said Monday, President Chan Santokhi, who took office in the institution. In fact, other women have Reuters reported. “WhatsApp will start doing July, announced the launch of a consent solic- served in that role, but Mejía is the high- P2P soon. I have talked a lot with their CEO, itation for its 2023 and 2026 bonds. The con- est-ranking woman from Latin America to we are making good progress. He has told me sent solicitation expires on Nov. 23. [Editor’s serve in that position. that the process [with us] was faster than in note: See related Q&A in the Aug. 5 Advisor.]

COPYRIGHT © 2020, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, November 17, 2020 other countries,” said Campos Neto. “Our only FEATURED Q&A / Continued from page 1 concern is that we must go through all the approval criteria and that we have a system sities, which are threatened by new, higher unrestrained power to congressional major- that fosters competition.” The central bank standards. Another cause of the impeach- ities, which is problematic when checks and chief made the remarks at the launch of the ment was legislators’ political ambitions. balances are fragile, as in Peru. This is com- bank’s new “PIX” instant payments system. One political party was seeking amnesty for pounded when political parties, in the proper WhatsApp launched a payments service in its imprisoned leader. Others hoped to tilt sense of term, do not exist—which is the Brazil on June 15, but the Brazilian central bank the 2021 electoral playing field in their favor. second cause. With very few exceptions, the and the country’s antitrust regulator shut the Many wanted to overturn the new prohibition parties that control most seats in the legisla- service down, saying the system needed to be against legislators’ re-election. An additional ture are nothing more than the extension of reviewed for concerns over data privacy and cause was that, given the brevity of this business or particularistic interests. A few also competition. The central bank has also legislative term (January 2020-July 2021), are family fronts for for-profit universities; some strong candidates chose not to run one party is the expression of a messian- in 2020, and many legislators are rookies. ic, syncretic cult whose commitment to Brazil’s central bank has They reacted intemperately to criticism democracy is questionable. Another party also been discussing the by Vizcarra. They wrongly assumed that is allied to a military officer, who is in prison allegations of corruption against Vizcarra for killing members of the police during his payments market with would significantly decrease his support; attempted coup against democracy in 2005. Google and other firms. his approval remains above 50 percent. The third cause is the ambiguity of an old When what matters to Peruvians is that constitutional norm that allows Congress to Vizcarra was weakening the ‘traditional remove the president if s/he is found to be been in discussions with Google and other “big corrupt political class,’ Merino was bringing ‘morally unfit.’ Before 1993, this article was tech” firms about entering the South American it back. Worse yet, Merino enabled repres- rarely invoked. With the unicameral system, country’s payments market, Campos Neto add- sion against largely peaceful protesters and an aggressive majority, it has been ed. When asked whether WhatsApp’s payments who hailed from all social classes and all used four times in the last three years. The system would operate within the central bank’s regions. Soon, the Constitutional Tribunal is institutional dysfunction which led to former PIX payments system, Campos Neto said to rule on the ‘permanent moral incapacity’ President Vizcarra lacking a vice president— there would be room for platforms other than clause and might catalyze the restoration of when the Constitution requires two—has PIX. Approximately 72 million registrations Vizcarra. (This clause is vague, but it is the temporarily turned Peru into a parliamentary have been opened for PIX, which was made same clause that enabled the impeachment regime. Any representative who can muster fully operational on Monday, the central bank of Alberto Fujimori and the impeachment a congressional majority will become Peru’s said. That total includes 30 million individuals threat against Pedro Pablo Kuczynski.) More next president. All of this speaks poorly to and 1.8 million businesses, according to a likely, legislators will elevate a more respect- Peru’s prospects. The protests in the street central bank official. The platform will allow ed member of their ranks. Meanwhile, the have also become a significant factor, and individuals and businesses to execute bank instability is worsening Peru’s economic they will be influential in what will happen transfers 24 hours a day. PIX will boost the crisis and investment climate and turning next. Indeed, it will be the protesters who is- speed, easy and efficiency of small and large attention away from the pandemic, which sue the ultimate vote, accepting or rejecting, financial transactions and will also lower costs has hit Peru exceptionally hard. The country the president appointed by Congress. Mean- and encourage competition among financial is both fighting and crying.” while, managing the economy and fighting service providers, said Campos Neto. The the pandemic have been put on hold.” PIX system is an upgrade over the existing Julio Carrión, associate chair of system, known as SITRAF, which is similar to the Department of Political Sci- César Gutiérrez, director of the wire-transfer system in the United States, ence and International Relations utilitiesperu.com in Lima: “The according to Pymnts.com. In order to execute A at the University of Delaware: current crisis is a combination transactions through the system, users will “Peru’s crisis of governability has three A of events that the country has need to register “keys,” with their bank or other causes. The first concerns the flaws in con- experienced in the last 30 years, mainly acts financial services provider. The keys can be stitutional design. The unicameral system of corruption by the political class that have information such as the user’s email address or created by the 1993 Constitution encourages been denounced, prosecuted and have occu- phone number. [Editor’s note: See related Q&A rushed decisions that cannot be checked pied the media with which the millennial gen- in the July 2-15 issue of the Financial Services by a second chamber. Unicameralism gives eration has grown up. To a lesser extent, the Advisor.] Continued on page 4

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2020 unresolved exclusions of the reforms of the tially enacted. Several constitutional tribunal 1990s have also been influential. Outrage judges have overextended their terms amid Erik Brand has increased over the last four years, with discord on how to replace them. Government Publisher [email protected] Congress carrying the stigma of subordinate checks and balances have been stretched. interest, privilege and the low qualifications Peru will experience one of the steepest Gene Kuleta Editor of members of Congress. Last week’s vacan- economic contractions in Latin America and [email protected] cy’s legality has been biasedly questioned, a rating peers, near 12.5 percent in 2020, exac- Anastasia Chacón González doubt that has been installed in the collec- Reporter & Associate Editor tive mind by a persistent campaign by the [email protected] media. Private investment has been elusive Governability in the past four years, and it is natural for challenges are

investment to stall amid an electoral period likely to persist from Michael Shifter, President such as the one Peru is undergoing. To this congressional Rebecca Bill Chavez, Nonresident Senior Fellow has been added the crisis, which still has no fragmentation.” Sergio Bitar, Nonresident Senior Fellow way out. No decisions will be made until this — Kelli Bissett-Tom Joan Caivano, Senior Advisor transition period has passed and there is a Michael Camilleri, Director, Rule of Law Program new government whose stability is guaran- Kevin Casas-Zamora, Nonresident Senior Fellow teed and whose positions are known, which erbated by Peru’s stringent early lockdown Héctor Castro Vizcarra, Nonresident Senior Fellow is expected to come in the third quarter of but also a weak social insurance system Julia Dias Leite, Nonresident Senior Fellow next year. The international perception of amid high business informality. The current Ariel Fiszbein, Director, Education Program Peru and its economic management has political crisis will curb private nonmining Peter Hakim, President Emeritus not yet deteriorated. The EMBIG has not investment at least through the presidential Nora Lustig, Nonresident Senior Fellow exceeded 144 basis points, a fairly good and congressional elections on April 11, Margaret Myers, Director, Asia and figure. However, if the uncertainty continues, 2021, dampening economic expectations for Latin America Program Manuel Orozco, Senior Fellow not only will this index grow, but there will 2021 below what was otherwise expected Xiaoyu Pu, Nonresident Senior Fellow also be a declassification of the country risk to be a relatively speedy recovery, near 8 Jeffrey Puryear, Senior Fellow for global and sovereign bonds.” percent-9 percent growth, according to the Mateo Samper, Nonresident Senior Fellow central bank’s macro expectations survey. Tamar Solnik, Director, Finance & Administration Kelli Bissett-Tom, director for Some congressional initiatives, such as pen- Lisa Viscidi, Director, Energy Program Americas Sovereign Ratings at sion withdrawals, will temporarily support Denisse Yanovich, Director of Development, Fitch Ratings: “The interim pres- household consumption but accelerate com- External Relations & Special Projects ident will face legitimacy chal- prehensive discussions about Peru’s pension A Latin America Advisor is published every lenges lacking a popular mandate until the system. Other initiatives pose more risk to business day, except for major U.S. holidays, new president and Congress are inaugurated infrastructure investors or the financial sys- by the Inter-American Dialogue at on July 28, 2021. Governability challenges tem. Greater capacity for political dialogue 1155 15th Street NW, Suite 800 Washington, DC 20005 are likely to persist from congressional frag- will be required for the next administration www.thedialogue.org mentation, particularly if the next president and Congress to tackle core economic ISSN 2163-7962 lacks party representation in Congress. challenges and to chart a reliable course of Subscription inquiries are welcomed at Many of the issues that contributed to Peru’s fiscal consolidation.” [email protected] several political crises since 2016 remain The opinions expressed by the members of the Board of unresolved and could reignite tensions be- The Advisor welcomes comments on its Q&A Advisors and by guest commentators do not necessarily tween the president and legislature. Political section. Readers can write editor Gene Kuleta represent those of the publisher. The analysis is the sole and institutional reforms strongly supported at [email protected]. view of each commentator and does not necessarily represent the views of their respective employers or firms. by a popular referendum have only been par- The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.